Airlines fly high by leasing planes

If it appreciates, own it. If it depreciates, lease it.’ Almost all of the Chinese airlines lease their aircraft because it’s an economical way for the airlines to both keep their fleets up to date (our illustration is of the inside of the new Airbus 380) and expand them quickly for less money.

According to an estimate by Shanghai-based China Business News, between 60% and 80% of the country’s commercial airplanes are leased. At present China has more than 900 aircraft. In 2005 alone, leasing contracts for aircraft, worth more than $16 billion, were made in the country.

Niall Morrissey, regional managing director of Macquarie Capital’s leasing business and head of Macquarie Leasing China, said, ‘The airlines are the most advanced of the Chinese organizations in terms of leasing. They have been leasing for years because airplanes are expensive items and very re-leasable, and change maybe every eight to 10 years although they still have good value.’

Aircraft leasing will grow along with the fleet expansion in China as carriers expand capacity to handle surging passenger traffic.

China will need about 3,400 new airplanes worth about $340 billion over the next 20 years, and the country’s fleet will quadruple to 4,460 by 2026. The financial leasing market will be about RMB750 billion ($100 billion).

Niall Morrissey said the aircraft leasing market in China was dominated by foreign companies because they take an equity position in the aircraft they lease.

The reason may be tax. Qu Yankai, an official at China’s Association of Enterprises with Foreign Investment, said compared with other countries, domestic leasing firms have to pay as much as 22.8% imported value added tax if they import planes. And need to get approvals from the National Development and Reform Commission and Civil Aviation Administration of China or China Aerospace Corporation before buying an airplane.